0.11% of India's Population Pays 80% of Its Personal Income Tax

May 3, 2016

The Income Tax department shared some very interesting data last week. In today's column I will look at these data points and try and make some sense of them.

In the assessment year 2012-2013, around 2.87 crore individuals filed income tax returns. The total income tax collected from these individuals amounted to Rs 1,14,555 crore. In assessment year 2012-2013, income tax returns for the income earned in 2011-2012 had to be paid.

The interesting thing nonetheless was that only 1.25 crore individuals paid any income tax. Data from the World Bank shows that in 2011 the population of India was 124.7 crore. This basically means that in assessment year 2012-2013 around 1% of India's population basically paid income tax.

One explanation for this is straightforward that income from agriculture is untaxed. Close to 50% of the country's population still depends on agriculture for a living. Further, this also tells you that India is a poor country, where most people earn a taxable income of under Rs 2.5 lakh per year, above which one has to start paying income tax.

Around 3.94 lakh Indians pay a tax of greater than Rs 5 lakh. In total they paid an income tax of Rs 64,313 crore in assessment year 2012-2013, which made up for around 56% of the income tax paid by individuals.

Further, around 13.9 lakh Indians paid an income tax of greater than Rs 1.5 lakh. In total, they paid an income tax of Rs 91,110 crore. This made up for around 79.5% of the total income tax paid by individuals for the assessment year 2012-2013.

This means that around 0.11% of India's population (13.9 lakh divided by 124.7 crore) paid around 80% of the income tax paid by individuals in the assessment year 2012-2013. This is one data point that clearly tells you how few Indians actually pay income tax.

Only around 26 lakh Indians filed for income from house property under the individual category. A total income of Rs 29,927 crore was declared under this category.

Of this around 6.06 lakh showed losses under income from house property. This would primarily include people who have taken on a home loan to buy a house and are repaying it. The interest paid on a home loan can be adjusted as a loss. Prima facie the number seems to be extremely low.

Further, this means that around 19.95 lakh people declared "real" income from house property. This is another extremely low number. What this means is that there are only 20 lakh landlords in the country. This is a clear indication of the fact that most landlords are getting their rents paid in cash and not paying any income tax on it. It may also be an indication of the fact that many landlords have not put up their homes on rent.

The data points released by the income tax department answers a major question-what is the effective rate of personal income tax in India. We all know that there are three income tax rates of 10%, 20% and 30%, with a higher rate being applied as the income goes up. Nevertheless, what portion of income is the government actually able to collect as tax, after all the deductions are applied, is an interesting question to answer.

Income under the head

(in Rs crore)

Salary

6,27,200

House property income

29,927

Business income

4,03,251

long term capital gain

30,479

short term capital gains

3,290

Other sources income

1,28,020

Interest income

44,918

Total Income

12,67,085

Total tax collected

1,14,555

Effective rate of income tax

9.04%

Take a look at the above table. For the assessment year 2012-2013, individuals declared a total income of Rs 12,67,085 crore. On this an income tax of Rs 1,14,555 crore was collected. This means an effective rate of 9.04%. Hence, the effective rate of income tax is even lower than the lowest rate of 10%. This is clearly a reason to worry for the government.

While the release of detailed income tax data is a good start, much more remains to be done. First and foremost, data from more years needs to be released. This means releasing data from prior to assessment year 2012-2013. It also means releasing data from years after assessment year 2012-2013. More data would help researchers spot trends over the years.

The data released last week is now almost half a decade old. It would be great that in the time to come, the income tax department can be more prompt in releasing such data.

One major complain I have with the income tax department on this is that they released the data in the form of PDF files. While that is fine, data in the form of excel files should also have been released. This makes the data machine readable immediately and is of tremendous importance for researchers. Otherwise a lot of time is uselessly spent in transferring data from the PDF files to an excel file.

Also, it would have been great if exempt income (like dividend income from stocks, long-term capital gains on stocks etc.), would also have been declared. This would have given us some idea how much potential tax is the government losing out on.

To conclude, this is a good start. Nevertheless, more income tax data needs to be declared in the time to come.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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16 Responses to "0.11% of India's Population Pays 80% of Its Personal Income Tax"

Zulfiquar Singaporewala

May 12, 2016

Dear Vivek,

Our system of I Tax is very lose type means what data shows 80% I Tax payed by 0.11 % apx. If India is among fourth largest economy of the world means at least 15 % citizen must have worth who should be income tax payee.The reason being highlighted already like many shopkeepers / ice creams parlors / Namkeem / Thelawalas are not under income tax payers this is not a big class. Main issue is with land dealing as real registry of land ( Though we have guidelines ) is very less and in many cases it is just 15 to 30 % of its original values like in raw land. This black money is so huge that there is no requirement of black money to be brought back from Swiss.If land dealing is properly addressed all our needs can be fulfilled without compromising on any plan made by govt. Zulfi

It is well known fact that approx 50% populations (more than 60 lacs) are BPL and farmers. If you excl these BPL,figures in your calculations, will look very different. I feel not more than 2% of population (in salary cl) is in 30% tax bracket. However since many of them may be having income from business also, they may be filing ITR 4. Salaried cl in lower tax bracket usually file ITRs to get tax refund. If refund is not due, most of them they won't bother to file ITRs, especially if come under "Exempt" category. This is the reason for higher percentage of ITRs in lower tax bracket. However, people in business like our family baniyas, vegetable Paan & fast food vendors, professionals (doctors, CAs & lawyers) are real culprits & a very high no of them own real estate. I know many in each of these categories including some vegetable & Paan vendors who earns many times more than me & own bigger property than me, but seldom show their complete earnings in tax returns, if at all file ITRs. IT dept will do well to go after these people & scrutinise at-least 50% ITRs in these categories, if not all. To start with connect all Registrars Offices (property) with IT office & make PAN necessary for any transaction above 10 lacs mandatory. If PAN of present property holders are NA then they should be asked for the same, details be provided to IT dept & ITRs scrutinise. Unless a person earns more than 2.5 lac pa, he cannot even imagine purchasing a property. This will force many of real state holders to file ITRs & reduce black money in the system.

Vivek, well compiled information. I am sure there can been a lot of interesting analysis that can be arrived at with the IT data that has been officially released by the Govt. One suggestion will be to see if there has been any variance in the Income tax collected versus what is portrayed in the respective Budget for that Fiscal year. I feel there could be marked variance and hence even the fiscal deficit for past years could be badly skewed.

Dear Vivek,The article was very good. However if you look at the sales of consumer goods like refrigerator, air conditioner, washing machines and mobiles with price tag above Rs.10,000, you will find that the total amount spent on these items is probably more than the income generated. Also account for sales of these goods on EMI and you will exactly come to know the percentage of black money in the economy.

The Government should encourage people to file income tax returns. This can be done by providing small incentives like medical insurance cover for those who file income tax returns. This will provide critical impetus to an essential ritual of filing income tax returns.

They might buy some more gold / ornaments / flats or take more holidays abroad Of course , the expenditure for the purchase of flats and ornaments will help the economy

# 5430 Rich persons

Some of them would also indulge in buying gold / flatsMany would buy luxury cars / luxury goods ( Consumer Durables , like domestic appliances or Consumables like expensive clothes / ornaments / purses etc )All of this expenditure will , no doubt , help the economy grow and create more jobs

# 14 lakh Middle Class persons

From the above data , it is obvious that it is this Middle Class persons ( 14 lakhs ) , who bear the brunt of the Personal Tax collection !

And , as Rajiv Gandhi once said , for every rupee of tax that they pay , only 15 paise worth of " Civic Services " ( infrastructure / drinking water / health-care etc ), returns to them !

And , on top of everything , they have no " Social Security " of any kind !

So , I believe that they would invest the saved tax money in bank fixed deposits / mutual funds / life insurance / Public Provident Fund etc , to ensure a small - but steady - source of income after retirement

Now , if Rs 2 lakh*crore of this tax saving were to become " Bank Deposits ", it would enable these persons to raise their " Credit Rating / Loan Repayment Capacity " and take out bigger loans for homes / cars etc

This would give a huge boost to our economy !

That would also raise our Domestic Saving Rate , once again , above 30 %

That would also relieve some pressure on the Government to introduce a forced " Pension Regime "

And , if this group spends some more money in sending their girl-child to better schools , they would be investing in a better future of their children - a highly desirable type of expenditure !

And do not discount the long term social impact of investing for retirement

In most middle class Indian families , parents today depend upon their SONS , to look after them in their old age . Male child is THE only retirement assurance for these people

When tax savings make it possible for them to become independent of their male child , the desire to have a male child ( at the cost of aborting a female child ) , will go down !

# 111 lakh , Neo - Middle Class persons

They have just entered the minimum tax slab ( 10 % ? )

Without doubt , they would spend the saved tax money in buying items of daily NECESSITY - food being the foremost ! May be some cheap clothes !

By being able to meet the Cost of Living a little better , these persons would be able to live a dignified life - even if living in slum-like conditions !

Their tax-saving would just not be enough for them to book a 250 sq ft flat !

And since there would be no Personal Income Tax to be paid, no one would want to hide any income !

Every rupee of income would get accounted for in official banking channels !

Other than small daily purchases , large CASH payments will disappear !

Overall some good observations - parallel economy is well known , this data point just helps substantiate it - point 4 re.effective tax rate , calculation should be considering those who actually pay taxes to get a fair representation of tax rate - nevertheless i don't see this going beyong a range of 15-18% which does present a case for lower tax rates along with reduction of tax exemptions.

A similar discussion with my mentor who.had a more radical thought , abolish income tax , recover shortfall through corporate taxation. Lower comp expense for firms, higher take home for employees and reduction in administrative cost to manage personal income tax

Govt. collects taxes like an OCTOPUS, by giving various names to Taxes, like Service Tax, Share transaction Tax,Turnover Tax,Property Tax, Road Tax,User Charges like Tolls, etc., etc., .It is not wise to draw conclusions based on Income Tax alone.

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